On August 9, 2010, about a year after finally firing her close friend Danny Dankner as chairman of Bank Hapoalim, Shari Arison, the bank's controlling shareholder, was questioned by the National Fraud Squad. Mainly, they wanted to know why she stood by her man despite the Bank of Israel bending her arm to dump him.

This week Danny Dankner's trial starts at the Tel Aviv District Court.

Dankner chaired Hapoalim for two years, from June 2007 to July 2009, until the Bank of Israel forced him out. Ahead of which, his supporters, Arison included, argued that the central bank didn't explain exactly what he'd done wrong, merely settling for vague allegations. The press didn't quite get it either.

The indictment handed down against Dankner in late October dispels the fog. The Bank of Israel didn't merely have a “smoking gun” against Dankner. It had a whole arsenal. The charges include fraud, money laundering and violating proper bank management practices.

Just this week Zvi Ziv, who resigned in March 2009 as CEO of Hapoalim shortly before Dankner’s own removal, told police, “The thing with Danny was that he deceived me right from the start in the hope that I’d resign.”

In her testimony to police, Shari Arison said she knew nothing of his private business affairs. That merely strengthens the attorney general's charges that he didn't disclose his affiliations or ostensible conflicts of interest caused by chairing the bank while co-owning the Elran investments group.

Arison’s testimony began with meeting Dankner in 1998. Her father, Ted Arison, asked him to sit on Hapoalim’s board. Asked how she'd decided to appoint Danny Dankner chairman, Arison answered that it was only natural.

“He'd been on the board 10 years,” she said. "He was the vice-chairman and also chaired [Hapoalim credit card subsidiary] Isracard."

In 2008, the Bank of Israel began trying to persuade Arison to oust Dankner. Yet she insisted on keeping him on. Only after Bank of Israel Governor Stanley Fischer met with Arison personally did she realize that she had no choice.

Why had she been so insistent? "It has very much to do with my values," she told police. "In everything I do, whether in business, philanthropy or my personal life, I am guided by my inner truth, my values. When I was summoned to the Supervisor of Banks, they didn’t tell me they were dissatisfied with Danny’s performance. They simply ordered me to fire him. When I asked why, I felt they gave me insufficient answers.”

They talked about the bank’s investment in mortgage-backed securities, which Hapoalim ended up having to write off. “But this investment was nothing unusual for a bank or Hapoalim," she told police. "There was a whole system in place to vet investments." The investment began under the previous chairman, Shlomo Nehama, she said: "So why pick on Danny Dankner?”

Wouldn't hang without proof

Then there was Hapoalim's deal to acquire Ukrainian Innovation Bank, which was canceled in October 2008. “Once again, it had been approved by the board and the Bank of Israel, so to say after the fact that it was unwise and to cast blame on Danny Dankner was unacceptable to me," Arison said. "They said there were anonymous letters about Danny’s management practices and also about his practices when it came to credit, and I said I couldn’t comment on anonymous letters.... I said that if they had something to prove to me, they should show me why they wanted me to throw Danny out and I’d listen, since I could be wrong. I said I wasn’t about to hang him in the town square without proof.”

Had she talked with Dankner about the central bank's accusations? “I don’t remember how he reacted. I remember that he was very angry. None of us understood. I didn’t understand," she said.

What did she know when appointing him to chair the bank's board about his interest in Elran Investments? Her answer was a single word: “Nothing.”

What did she know about Elran Investments? Her answer was two words: “Truly, nothing.”

How would she describe her relationship with Dankner, the investigators inquired.

“It was warm, loving," Arison answered. They grew close after the Bank of Israel started to crack down on Dankner, she elaborated. He did not share his financial difficulties, she said.

At the end of the day, Dankner had told her the charges were balderdash, "that he was going with his truth."

Later, Arison said that she met with Dankner an average of once a month. “That’s also a guess, because my life is dynamic and it wasn’t a meeting that took place on a regular basis.” No, there were no minutes of these meetings, she said, adding:

"As the controlling shareholder, it’s illegal for me to be involved in the bank's day-to-day management. The only thing I’m interested in is the vision.”

In mid-2009, Dankner and Arison realized that the Bank of Israel was adamant. Dankner accepted the inevitable and quit. Arison promptly appointed him CEO of her private company, Arison Investments. She had felt he had been treated unjustly, she said.

Dankner and the Turkish bank

Then there was Hapoalim’s acquisition of Turkey’s BankPozitif, which it planned to pursue together with the investment fund RP. Ultimately the Turkish authorities refused to let RP become a significant shareholder in a bank on the grounds that as an investments fund, not a financial institution per se, it wasn't regulated. Hapoalim paid RP $25 million in compensation, though the agreement between Hapoalim and RP set compensation for that eventuality at $5 million. Nehama, chairman at Hapoalim when the Pozitif acquisition was decided on, told police he believed the deal had been handled by the Hapoalim CEO at the time, Zvi Ziv, rather than Dankner.

Dankner, however, is charged with not having told the Hapoalim board of directors about his personal business dealings with the owner of RP, Rafael Berber. What did Arison know about the BankPozitif transaction?

“I wasn’t involved at all,” she told detectives. She also said she knew nothing of RP or Rafael Berber. “This is the first time I’ve heard those names.”

Secret loan

Another charge against Dankner is that he never disclosed a loan he received from a shareholder of BankPozitif, Turkish businessman Halit Cingillioglu. According to the indictment, Cingillioglu asked Dankner for a personal loan of 10 million euros, and pressured him to approve the distribution of dividends from BankPozitif. At the same time, according to the indictment, Dankner asked for and received a loan of 5 million euros from Cingillioglu. The loan was placed in Dankner's account on the day Hapoalim acquired another 4.82 percent of BankPozitif’s shares, the prosecution charges.

The detectives asked Arison if she knew about the loan. She had a surprising answer: “I don’t know whether this has anything to do with it or not, but while Danny was in detention, his Turkish partner, Cingillioglu, called me on my cell phone. He told me to give Danny a message – to pay back the loans right away because the banks watchdog was pressing him and it was harming him personally. When I told him I didn’t know what he was talking about, he said there was no need for me to know anything, just to give Danny the message.”

Finally, the detectives asked: “Was your relationship with Dankner such that he could ask for and receive a loan from you?” Arison answered, “Danny contacted me only three or four months ago, maybe a little more than that. It was before Cingillioglu’s telephone call. We were negotiating the terms of his employment, and he asked for a $2 million loan from Arison Investments. When I asked Efrat and [accountant Gad] Somekh why Danny needed the loan, they told me he was in financial trouble. When Cingillioglu called me, I was in shock because I didn’t understand why he needed a loan from me. In the end, Danny never took a loan from Arison Investments. He got a severance package when he stopped working for Arison Investments.”

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What deserves investigation is why Poalim bought MBS after the very
public Notice to Shareholders regarding the potential damage and
negative effect on dividends the MBS portfolio held for the bank. It was
a wake up call throughout the banking community. Somebody at Poalim ws
fast asleep or perhaps had selfish motives for concluding the purchase.

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